Germany still on track with high morale

I am City A.M's deputy editor, having joined the newsroom in late 2010 as an economics reporter.

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Julian Harris

GERMAN business confidence has defied expectations by holding strong this month, despite drops in French and Belgian morale and tumbling industrial orders across the Eurozone.

Sentiment in the business climate stuck at 114.2 in May, according to the highly regarded survey from Munich-based think tank Ifo.

And the index measuring the current business situation climbed to a fresh high of 121.4, from 121 in April.

The news coincided with official data confirming that the German economy grew 1.5 per cent in the first three months of year.

“It is important to emphasise just how elevated these indices are, especially in the context of the bad run of news in recent months,” said Eoin O’Callaghan of BNP Paribas, citing high oil prices and knock-on effects from the Japanese earthquake.

“Germany cannot be immune to these dynamics, but there is very strong momentum in the economy.”

German manufacturing saw a decline for the third consecutive month, however, from 28.7 to 27.8 in the sub-index.

In France the business climate among factories also dropped, for the second straight month, according to the statistics office INSEE.

The index slipped from 109 in April to 107 in May, yet remains above its long term average.

A sharper drop was recorded in Belgium, where a confidence index plummeted from 2.8 to -0.5, dragged down by the manufacturing sector.

“It’s reached its lowest level since October 2010,” said BNP’s Steven Vanneste. “At current levels, the indicator is indicative of growth around two per cent, a notable slowdown from the three per cent registered in the first-quarter.”

New industrial orders dropped by 1.8 per cent in March across the Eurozone, according to a separate data release from the Eurostat office.